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The Financial Health of the LCA During the Lawsuit

October, 2022: In August 2021, it became widely known among concerned LCA members that the sole remaining Plaintiff in the lawsuit (Philip A. Denney) had been replaced as Plaintiff by the LCA. Although in the world of corporate law, the Plaintiff is now the corporation of LCA and the suit is administered by the appointed managerial staff (i.e., the Board of Directors), for all practical purposes the action means that the entire LCA membership is responsible. It is now known that the motion was filed on July 20, 2021, but that the LCA Board of Directors had committed to pursuing this action in April 2021, within a month of their being installed as the Board.

As a result, LCA members have expressed concern over the continuation of the lawsuit for four reasons: (1) A close reading of the Complaints reveals there is no merit in the accusations Some commentators believe that this claim must have factual proof. Sadly, this view reveals a profound misunderstanding of the principle of presumption of innocence. The burden of proof falls entirely on plaintiffs. Where is their proof? [Note]. ; (2) By keeping the decision and initiation of the Realignment of the Parties from the membership, the individual LCA Board directors have violated their promises of openness and transparency, (3) Recent constraints on participation at Board meetings has fomented further distrust, a dimunition of member involvement in LCA policy decisions, and increased discord; and (4) The use of the LCA treasury to pay lawyer and court fees materially harms members.

Many members and at least one Board Director have asked the question: "How much of the LCA treasury is the Board willing to spend on this lawsuit?" No definite answer has been given by the BoD. For these reasons, this page will provide financial data reported by the LCA Board in an accessible form that monitors the extent that the lawsuit is damaging the financial health of the LCA.

March 2023: The LCA Board of Directors has always been composed of volunteers. In any given year, the members may have come from varied backgrounds; often the individuals do not have technical or business expertise, and may not have training in managing people. Relevant to the issue of the financial health of LCA, it is rare if a Director possesses accounting skills. Unfortunately, creating and understanding the financial reports needed to assess financial health is difficult and beyond this document to explicate. Below, three types of graphs are plotted:

  1. The "Profit-Loss (Accural Basis)" report that lists the monthly income and the monthly expenses. For LCA, income is primarily membership dues and the cell tower lease income; expenses include payroll, infra-structure maintenance, office expenses, and utilities.
  2. The monthly state of the checking and savings accounts held by LCA by year. This provides the data most familiar to the average citizen: the amount of cash that is readily available to meet costs for the next month.
  3. The "Balance Sheet (Accural Basis)" report that lists (a) the "Current Assets" (non-fixed assets: checking, savings, accounts receivable, other non-fixed assets). As with the plots of (1) above, these assets are relevant to short-term financial health. (b) The "Fixed Assets" (buildings, land, infra-structure, vehicles, etc). These assets, while real, are not especially relevant to the issue of the short-term LCA financial health, and are not plotted.

Readers are encouraged to examine the financial reports posted on the LCA webpage. Questions about the numbers plotted should be directed to the LCA Treasurer.

(Click for larger version)

20-22 ProfitLoss

the scale of the graph with a value of $263,300.20 and obviously differs from the January values for 2020 and 2021. The 2022 Profit-Loss report also shows under Income "2022 Annual Lot Assessment" $264,000.00. The 2020 and 2021 reports showed Member Dues income of $810.00 and $0.00, respectively. There has been no explanation from the BoD as to why 2022 Lot Assessments are listed as income in January (rather than, presumably, March, when members are typically billed), nor why the January 2022 Balance Sheet shows under "Assets" Accounts Receivable of $624,236.49. Better explanations of financial reports would allay suspicions of financial mismanagment by members who do not possess knowlege of accounting practices R. H. Hermanson, J.D. Edwards, and M.W. Maher. Accounting Principles: A Business Perspective. First Global Text Edition, Volume 1: Financial Accounting. Creative Commons. (Free textbook).

The negative value in February 2022 (-$371,644.69) is large compared to other years, but is apparently due to paying the invoice for repaving the Leilani roads in 2021 ($344,800.03).

(Click for larger version)

20-22 checkingsavings

Figure 2. The data in this figure are Checking and Savings cash at the end of the month taken from the published "Balance Sheet Accural Basis" files posted on the LCA webpage for the months Jan - Dec for 2020 through 2022. Missing data correspond to missing files, mis-named files, or profit-loss analyses based on "Cash Basis."

The large decrease in savings between January and February 2022 may have been due in part to paying the invoice for the Leilani road resurfacing.

(Click for larger version)

20-21 LCA Current Assests

Figure 3. The data in this figure are taken from the published "Balance" files posted on the LCA webpage for the months Jan - Dec for 2020 through 2022. The values are restricted to "Current Assets" (bank accounts, CDs, payment to LCA, etc.); fixed assets (property, etc) are not relevant in the current context.

The value for January 2022 differs greatly from the previous two years. Most of this difference is due to the entry: "Assets" Accounts Receivable: $624,236.49, which is not explained (see Figure 1 above). The figure also illustrates a fact of LCA finances: Most of the income is from dues assessments of which most are paid in March and April. This figure shows the inevitable decline in assests since little is coming in, but salaries and other costs are relatively constant for much of the year. If legal fees appear in future financial reports, they will be posted here.

On the Quality of Meeting Minutes and Transparency in Financial Reporting

An accusation has been made that a sentence above (viz., "The large increase in debt reported in April 2021 has not been explained in the May, June, or July BoD meetings...") is a lie. And furthermore, it is claimed that the explanation is in the April meeting minutes. This section refutes both statements.

About the formatting of the minutes: The minutes of the April 2021 meeting are so loosely formatted that the meaning is sometimes lost or changed depending on the width of the browser window that is used. In the interests of accuracy, what is displayed here reflects that same formatting problem.

The following is a complete copy of the minutes of the April 8, 2021 BoD meeting as it is shown on the LCA webpage (accessed 2022-02-15, screen shots available). The portion in bold font addresses the question: Did the report of the Treasurer and other information provided explain the presence of -$25,600 listed in the Income portion of the Profit & Loss report? 

Minutes April 8, 2021, LCA BoD Regular Meeting

The regular meeting by the Board of Directors (BoD) for the Leilani Community Association
(LCA) was held at the LCA Pavilion on April 8, 2021 at 6:30 pm. Attendees included Keola
Bandmann (President), Jim Penny (Vice-President), Greg Armstrong (Treasurer), Lee Tieche
(Secretary), Marianne Farrell (Director) and Ross Stadnyk (Director).

Meeting called to order at 6:30 pm by Keola Bandmann

Roll Call: All Officers and Directors present.

Approval of minutes of the April 3, 2021 meeting – No discussion. Approved.

Reports:

Treasurer: Greg Armstrong reported that the financials will be posted on the LCA website very
soon, that he was sorting out several transfers of funds but the bottom line looked okay at this
time.

Neighborhood Watch: Update given by Richard Skidmore. (Note: this is a separate
committee not affiliated with LCA)

Special Orders:

Motion by Keola Bandmann to appoint Phil Denney to the LCA BoD. No discussion.
Seconded by Lee Tieche. Keola Bandmann – Yes, Jim Penny – Yes, Greg Armstrong – Yes, Lee Tieche
– Yes, Marianne Farrell, Ross Stadnyk – Yes. Approved.

Unfinished Business and Special Orders:

Approval of expenditures: $2,000.00 to Okahara Engineering, motion by Greg, seconded
by Marianne. Discussion – Total paid to Okahara is $9,034.00. Keola Bandmann – Yes, Jim
Penny – Yes, Greg Armstrong – Yes, Lee Tieche – Yes, Marianne Farrell, Ross Stadnyk –
Yes. Phil Denney – Yes. Approved.

Approval of expenditures: $22,100.00 D&O Insurance to Brown and Brown, motion by Greg
Armstrong, seconded by Lee Tieche. Discussion none. Keola Bandmann – Yes, Jim Penny –
Yes, Greg Armstrong – Yes, Lee Tieche – Yes, Marianne Farrell, Ross Stadnyk – Yes. Phil
Denney – Yes. Approved.

At this point in the LCA webpage, the minutes of the April 8, 2021 meeting abruptly end and are followed by a report of a "Special Board Meeting" held on April 2, 2021 for the sole purpose of allowing the BoD to legally engage in an Executive Session. On the LCA webpage listing of the minutes of the April 8, 2021 meeting, there is no explicit record that the April 8, 2021 meeting was adjourned.

Commentary

  1. From the Merriam-Webster Dictionary:
    Definition of explain:
    transitive verb:
    1a : to make known
    1b : to make plain or understandable
    2 : to give the reason for or cause of
    3 : to show the logical development or relationships of
    intransitive verb:
    1 : to make something plain or understandable (e.g., "It is a document that merely reports rather than explains")
    Synonyms: clarify, demystify, elucidate, explicate, illuminate, interpret, simplify
  2. The April minutes' Treasurer report makes no mention of the large decrease in April, nor of the -$25,600 in the P&L profit column. The April minutes do mention three monetary values outside the context of the minutes' financial report, but they do not add to -$25,600. This number is unexplained in the April minutes.
  3. The Profit & Loss Report was generated on May 12, 2021 more than 3 weeks after the April 8 meeting. It is illogical for the accusation to expect the April minutes to contain reference to the April P&L report. However, there is no mention of the April Financial Reports in either the May, June, or July minutes. Here are excerpts from the minutes of these three meetings.
    • May 13, 2021: "Treasurer: Greg Armstrong reported that the financial reports are now posted on the LCA website. Proposed Annual Operating Budget is on agenda to be discussed and voted on. SBA Loan was suspended during last BoD in early 2020. New loan officer is to be announced and then he will ask for reinstatement of the loan."
      "Approval of expenditures: Expenditures were approved by email. Entrance sign and Insurance." (In other words, expenditures not recorded in the minutes.)
    • June 10, 2021: "Treasurer: Reported that the financial reports are now posted on the LCA website. Missing paperwork from $15K grant for security equipment – may need to be refunded because previous Board did not file required reports or receipts. Working on SBA grant for roads – grant being reviewed by SBA and new loan officer – SBA loan was canceled in February 2020 by the previous LCA Treasurer."
      "Approval of expenditures: Expenditures were approved by email. Subscription Based Email Service: See Presidents Report." (In other words, expenditures not recorded in the minutes.)
    • July 8, 2021: "Treasurer: Reported total checking account balance is $468,260.73. Income for June was $5,100.36. Total expenses were $16424.77.
      Phil (Budget Committee) that Capital and Reserve funds are sufficient except for the road repair projects."
      "Approval of expenditures: Expenditures were
      Yamoto Electric for $665.97 – Approved
      Security Grant from Hawaii County for $13,500.00 (Old BoD not compliant) – Approved
      CPA for 990 Forms for $2290.00 – Approved"
    None of the above minutes mention the April Financial Reports or data that relate to them.
  4. None of the minutes in the April-July time frame mention the amount -$25,600.
  5. The minutes' financial reports here and in other meetings make no attempt to provide clear or understandable content on the accrual method of accounting and how it is possible to consider a payment (expenditure) a negative profit but not consider it a Loss.
  6. While the accrual method of accounting is an accepted method that provides the best picture of a corporation's financial health looking to the future, it does not give an accurate picture of the corporation's cash flow or cash amounts on hand R. H. Hermanson, J.D. Edwards, and M.W. Maher. Accounting Principles: A Business Perspective. First Global Text Edition, Volume 1: Financial Accounting. Creative Commons. (REF). For LCA to provide cash basis reports as well as the accrual basis reports would provide the members with both types of information. In the interests of transparency in reporting the financial state of the LCA, the Treasurer is strongly encouraged to provide both sets of reports. For those interested in learning more, a freely available 1,005 page introductory accounting text in PDF format is available from the Creative Commons' Global Text Project and can be downloaded here.
OVERALL CONCLUSION: It is not a lie to say that the large decrease in the Profit-Loss value in April 2021 has not been explained. (And, the logical negation of the previous sentence is true.)